BEST PRACTICE
Lessons on governance from President Trump
he last year has been a real governance learning experience for us all. For those
Twho watched the outcome of the Brexit
by Joy Allen CDir, Managing Director of Leading Governance Ltd, and Lead Tutor for the Institute of Directors
vote with disbelief, how confident are we in the validity of our democratic system?
As we watch Donald Trump settle into the White House, and begin to wield the incredible power of that office, many of us are asking‘ How can he be allowed to do that?’ Everything we’ ve ever learned about leadership tells us that the best definition of a leader is someone with followers.
While the Trump voters seemed convinced that he was the right man for the job, many of us have serious questions about his value base. How many‘ followers’ does he have among world leaders?
For most of us, living in a world where someone we don’ t respect is in charge of the big red button feels unsafe. His ego, arrogance, sexism and general bigotry are breathtaking.
One of the key elements of governance is the separation of powers, and that principle is enshrined in the US constitution. Political authority is divided into three branches: legislative, executive and judicial.
The three are separate and act independently, to stop any one branch from accumulating too much authority and trampling over liberty.
The current controversy is highlighting the importance of having checks and balances to prevent mismanagement. A US federal appeals court has now rejected President Trump ' s attempt to reinstate his ban on citizens from seven mainly Muslim countries. The 9th US Circuit Court of Appeals said it would not block a ruling by a Seattle court that halted the order.
While our own boardrooms may not include a Trump( you see things could be worse!), similar principles should apply. One of the key reasons for a growing company having a board of directors is that 10 heads( or 8 or 7 …) are better than one.
Directors have a legal duty to act in the best interests of the company, and they are more likely to do that if they think together, rather than allowing any one director to wield unlimited power.
Other checks and balances should be in place to ensure that key risks are spotted and managed, such as double approvals for all expenditure to prevent fraud, proportionate internal audit to check that controls re working as they should be.
Another key principle of governance is the delegation of authority, usually from shareholders to directors, directors to
18 www. businessfirstonline. co. uk managers( or committees), managers to staff. That delegation should happen within a clearly defined framework. The board should have a Schedule of Matters Reserved to the Board – a list of decisions that the board will not delegate, or does not expect to delegate( including substantial capital expenditure, mergers and acquisitions, board level appointments).
As we delegate downward through the organisational structure, we also need to ensure that there is accountability at each level to the one above.
Managers need to hold staff accountable for achieving their priorities within the agreed focus of the Business Plan. The Managing Director needs to clearly report to the board, and take full responsibility for what is happening day to day.
Our governance structures and processes should ensure professional decisionmaking. Boardroom skills, experience, knowledge, connections, and perspectives should be tailored to meet the needs of the business.
When carrying out our annual board skills audit, we need to start with the strategic priorities of the company – if we’ re seeking to break into new markets, or use new technologies in innovate ways, perhaps our skills mix needs to evolve.
The priorities for the board also need to be considered. Do we need to increase our focus on strategic planning, performance oversight or risk management?
If so, maybe we need to recruit new people with those skills. Boardroom complacency when things appear to be going well can be a real danger to the sustainability of our success.
The growing recognition of the importance
of Risk Management as a board priority must be a positive trend. However, it’ s vital that the board determines its risk appetite.
We don’ t want to stop taking risks altogether, or we risk killing the enterprise. The UK Code tells us to give‘ entrepreneurial leadership within a framework of prudent and effective controls’ so that we continue to grow and develop the business for the future.
If your board is seeking a new Non Executive Director to support the development of your corporate governance, be careful who you choose. Would you want a Trump on board.
Joy Allen CDir is Managing Director of Leading Governance Ltd, and Lead Tutor for the Institute of Directors, delivering 2 modules of the Chartered Director Programme –‘ The Role of the Company Director and the Board’ and‘ The Director’ s Role in Leading the Organisation’. She currently chairs the board of Morrow Communications Ltd and is a trustee for Alzheimer’ s Society. The views expressed in this article are her personal ones.